Retail inflation eases to 5.7% in December, remains within RBI's tolerance band for 2nd straight month

India's retail inflation eased to 5.72 per cent in December on an annual basis as against 5.88 per cent in November, 2022.
The number has remained within RBI's tolerance band of 2-6 per cent for the second consecutive month.

Sequentially, the headline inflation contracted by 0.4 per cent against a contraction of 0.11 per cent in the preceding month.

The decline can be attributed to easing food prices which account for nearly 40 per cent of India’s CPI (Consumer Price Index) basket.

Food inflation for December eased to 4.19 per cent. In November, it was recorded to be 4.67 per cent.

Inflation rate for vegetables contracted by 15.08 per cent against a contraction of 8.08 per cent last month. Meanwhile, inflation rate for fuel and light increased mildly to 10.97 per cent against 10.62 per cent in the preceding month.

Inflation rate for cereals came in at 13.79 per cent as against 12.96 per cent in November.

A fall in food inflation can be called good news for the households since a major chunk of an average Indian household's budget is dedicated towards this basket.

"India's retail inflation held steady in December, staying within the Reserve Bank of India's comfort zone for a second month as a moderation in food price rises was partly offset by elevated core inflation," a Reuters poll had found.

The poll of 45 economists had put consumer price inflation at 5.90 per cent in December from a year earlier, as little changed from an eleven-month low of 5.88 per cent in November. The estimates ranged from 5.40 per cent to 6.40 per cent.

Higher inflation has been a concern for central banks across the globe, including India, as the uncertain nature of the Russia-Ukraine war compounded supply side disruptions in the post-pandemic world that was barely going through a nascent recovery from economic shocks.

However, stable energy and declining crude oil prices can be linked to decline in India's headline inflation index.

In December’s Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) had retained its inflation forecast of 6.7 per cent for FY23.

"We are extremely watchful of evolving inflation dynamics and look at data almost on a daily basis and we will keep an Arjuna's eye on inflation and we will be ready to act," RBI Governor Shaktikanta Das had said.

The RBI, on December 7, had raised interest rates by a smaller 35 basis points to 6.25 per cent following three successive 50-basis-point rises in order to tame inflation.

The next RBI MPC meet is likely to be held on February 6-8, 2023.